Troubled WorldCom tries to calm jittery federal customers

WorldCom CEO John Sidgmore said, 'I don't see any significant chance of UUNet going dark under any circumstances.'

Anthony D'Agata of Sprint expects to pick up some of WorldCom's business.

(GCN Photo by Henrik G. DeGyor)

Tells FAA service will continue, but CEO Sidgmore says 'bankruptcy at some point' is possible

Although the General Services Administration is questioning the fitness of troubled WorldCom Inc. for future government business, GSA'and the carrier'are assuring customers that service on existing contracts will not be interrupted.

WorldCom is a major provider of voice and data services to the government, earning $462.5 million from 20 departments and independent agencies in fiscal 2001, according to GSA. It is one of two contractors, along with Sprint Corp., on GSA's long-distance FTS 2001 telecommunications program.

Among WorldCom's FTS 2001 customers is the Federal Aviation Administration. The carrier supplies communications for the National Airspace System.

'They've assured us that the employees who manage the air traffic operational networks will be protected from job cuts,' FAA spokesman Fraser Jones said.

Since cutting its stated earnings by $3.8 billion for 2001 and early 2002, the carrier has seen its stock prices plummet and has laid off 17,000 workers'20 percent of its work force. But layoffs probably will be fewer among workers serving federal customers.

Despite the assurances, some government agencies are jittery, WorldCom CEO John Sidgmore said at a Washington news conference earlier this month.

WorldCom operates a large chunk of the Internet through its UUNet backbone. By some estimates, UUNet carries as much as 70 percent of U.S. e-mail traffic.

Sidgmore said he had discussed service continuation with representatives from Defense and other agencies, including the Office of Homeland Security.

'They are very nervous at this point that something will happen,' he said. 'I think the chances of a major blip in our service provisioning are low. I don't see any significant chance of UUNet going dark under any circumstances,' including bankruptcy.

The possibility of bankruptcy has loomed since the earnings scandal broke last month and the company defaulted on loans. WorldCom is working to renegotiate terms with creditors.

'I am not going to say there is no way we won't end up in bankruptcy at some point,' Sidgmore said.

One strategy to avoid bankruptcy is to convince customers, lenders and regulators that WorldCom's welfare is essential to national security.

Contingency plans

Sidgmore also said the company has $2 billion in cash reserves and $30 billion in annual revenues.

'No one has cancelled to date,' Sidgmore said on July 2.

But some government customers are preparing for the worst.

'There has been a significant rise in inquiries from agencies planning for contingencies,' said Anthony G. D'Agata, vice president of Sprint's government systems group. 'We expect there is going to be an increase in migration of customers from WorldCom to Sprint.'

In a recent GCN reader survey, more than 54 percent of respondents said they use WorldCom's FTS 2001 contract.

Moving an agency's telecom services from one carrier to another is a complex undertaking requiring much planning. The government's transition from the previous FTS 2000 program to the current contracts took more than two years.

The irregularities and financial problems that led GSA to examine WorldCom's fitness for future contracts have not stopped WorldCom from pursuing federal business, however.

'We are announcing a new contract in mid-July for the FAA Telecom Infrastructure,' FAA's Jones said. WorldCom is a bidder along with Harris Corp. and Lockheed Martin Corp.

Will services suffer?

WorldCom was chosen in 1992 to design and build FAA's Leased Interfacility NAS Communications System (LINCS), a component of the telecom infrastructure. When the original contract expired in March, WorldCom received a bridge contract to continue providing voice and data services through LINCS to 5,000 FAA locations.

'The infrastructure is not going to go away,' said John Podrovitz, president of MSS*Group Inc. of Castle Rock, Colo., a financial services company specializing in telecom billing. But in the wake of possible layoffs, the quality of ancillary services such as billing might suffer, he said.

MSS*Group manages about $100 million a year in WorldCom billings. 'Typically, there will be something wrong with a bill 50 percent of the time,' MSS*Group vice president Roger Oustecky said.

Oustecky said customer agencies should watch their telecom bills so that if credits are due from WorldCom, they can be pursued quickly in case the carrier files for bankruptcy protection. Such credits then would fall in line with claims from other unsecured creditors, he said.